Are you missing out on an opportunity to grow?
Here’s a true short story.
Throughout the years, I’ve sat with many small business owners, and by small, I mean entities that are compromised from 1 to 10 people in total.
These people were doing very well and had full-scale operations happening from procurement, sales, and even customer support, with an average annual turnover of 500k per year.
When I asked them how do you manage their operations and supply chain, they said they are mostly manual by collecting data like orders from their social media page messages and post comments. These data points are fed into a couple of spreadsheets to carry out the fulfillment process
Can you relate to this story yourself or someone you know?
You came to the conclusion that with your company size, all you need is an excel sheet to manage your business.
You could be right, or you could be missing out on an opportunity to grow.
I’d like to prove you wrong.
So, first, let’s break down the typical life-cycle of a business:
Customer acquisition is the process of acquiring new customers. All your marketing efforts and money through those paid ads serve this purpose.
A very important metric you should always be calculating is your CAC or (Customer Acquisition Cost). This will give an insight into how much it costs your company to obtain a new paying customer.
A simple method to calculate your CAC is to divide your (Cost of marketing & Sales) by (the number of newly acquired customers).
So, for example, if you spend 10$ on an ad campaign for January and end up with 10 new paying customers, then your CAC for January is (10$/10 = 1 $).
Some would take a wider approach in defining their “Cost of marketing and sales” to include the costs of Ad spending + employee salaries + production costs + creative costs + inventory up-keep.
But what does this really means?
Your business model is single-dimensional, meaning that you only make money only if you keep acquiring new customers.
How is that bad for you?
Every business has a target market, and of that target market, they can only acquire a certain market share. The hard truth is that over time it gets harder and costs more to keep acquiring new customers. This means your CAC is on the rise; this is bad for business.
How to mitigate this?
Have you heard of the 80/20 rule?
The 80/20 rule states that “for many outcomes, roughly 80% of consequences come from 20% of the causes (the “vital few”).”
In business language, this translates to 80% of your company sales coming from 20% of your customers. This brings us to the next metric, “Customer Lifetime Value (CLTV).”
Customer Lifetime Value (CLTV)
Customer lifetime value indicates the total revenue a business can expect from each customer.
According to a study by Harvard Business Review, new customer acquisition costs on average between 5 to 25 times the cost of retaining an existing one.
Also, another study by Bain & Company concluded that a 5% increase in a business retention rate could lead to a rise in profit between 25% to 95%.
This 5% is one of the missed opportunities we’ve mentioned earlier.
So how do you increase your customers’ lifetime value or, in other words, increase your customer retention?
Implement a repeatable, quantifiable, and optimizable customer journey map for your brand.
Customer Journey Map
A customer journey describes how your prospects engage with your brand from the moment they become aware of it to when they become a customer and beyond.
Implementing a customer journey map allows you to track your customer interactions with your company through different stages.
Only then will you be able to materialize what works and not.
This diagram shows what a typical customer journey looks like:
When we speak of increasing your CLTV and lowering your CAC, we should take special care of the second part of the customer journey, After Purchasing.
So what and how after purchasing can help with your overall CLTV?
1 – Create a new target customer segment
If you don’t have proper visibility on your customer journey, you probably also don’t completely understand the demographics/firmographics of your customers.
This “blindness” is dangerous.
It wastes both time and money. To repeatedly target a broad audience than target who will be interested in your products or services.
With the correct data and platform, you can segment your customer personas based on static attributes like age, company size, gender, etc.
Also, take a more dynamic approach based on interactions like accumulative sales, product/service purchasing patterns.
2 – Implement A Proactive Customer Support Strategy
Customer experience is what makes a person loyal to your brand. Keep track of all the complaints and the team handling them. Make sure that you are meeting a standard SLA.
Customers love to be in the loop, automate states updates on projects and issues. A simple email notification can keep your customer relaxed that your brand hasn’t forgotten about them.
3 – Improve your retention rate
When you have visibility over your customers’ journey, you can point out individuals who are on the path to churn (Leave your business). If you log the expected behaviors and actions these customers have, you can start to spot them before leaving your company.
Implement retention strategies that are dynamic based on the customer CLTV. Even better, automate whenever you can.
4 – Keep monitoring and enhancing.
If one thing is a fact, it’s that you can always do better. Always keep an eye on bottlenecks, joint issues, and process SLAs. Try to automate, digitalize manual tasks, and include them into a measurable process whenever possible.
Technology is continuously changing to adapt to business, and your business needs to adapt to what technology offers.